KazuhiroShimamura

The world's second-largest steelmaker lifted its group net profit outlook for the year ending in March to Y365 billion from the previously estimated Y350 billion, and its group sales outlook to Y4.800 trillion from Y4.760 trillion.

But the Japanese steelmaker said it will need to raise its product prices further to cover higher production costs, as prices for raw materials such as nonferrous metals keep climbing amid strong growth in emerging economies.

Hikes in steel prices have supported the profit growth of Nippon Steel and other major Japanese steelmakers. But these hikes also mean the steelmakers will likely keep facing tough negotiations with auto makers, shipbuilders and electronics makers, who are keen to keep costs down amid fierce global competition.

"We have made price revisions in the first half, but that hasn't been enough" to offset the higher raw materials costs, Kiichiro Masuda, Nippon Steel executive vice president, said in a news conference. "With the costs rising so much, we can't make up for it by our own efforts alone."

Higher input prices will push up Nippon Steel's production costs by around Y70 billion in the first half. The company will be able to cover about Y50 billion of that amount through steel-product price hikes it has already made and cost-reduction efforts, he added.

Steelmakers set the prices of iron ore and coal with suppliers in annual negotiations. But rising input prices and their impact on steel production mean that both steelmakers and major users, including auto makers and shipbuilders, have to shoulder a heavier burden of rising prices of nonferrous-metals used in steel production, oil and shipping this fiscal year.

Fortunately for the steel industry, demand for high-grade sheet and plate steel is expected to remain strong and the U.S. subprime loan problem isn't having any impact on global steel consumption, Masuda said.

Growing consumption of steel in the "BRIC" countries - Brazil, Russia, India and China - and other emerging economies has had a far larger impact on the steel industry than macroeconomic conditions in the U.S., he said.

Nippon Steel also revised up its group net profit forecast for the first half ending Sept. 30, to Y170 billion from Y160 billion.

The steelmaker plans to pay an interim dividend of Y5 per share, up from Y4 it paid in the same period a year earlier, raising the likelihood it will hike its fiscal-year payout by at least Y1 from the last year's Y10.

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